Early Blockchain Rollouts Expose Interoperability Issues

Blockchain technology is making inroads in the enterprise, especially among banks and financial services firms handling heavy transaction volumes that require the back-and-forth of much transmitted payment information. While nearly six in 10 companies responding to a recent survey said they are either deploying or testing blockchain platforms, roadblocks such as interoperability and general disruption of traditional business practices remain obstacles to successful deployments.

Blockchain serves as a distributed ledger framework that posts transactions in real-time as cryptographically unique “blocks,” visible to authorized users. These blocks cannot be reversed or changed, with new additions to the ledger posted on top of the register of existing transactions.

In a industry survey released this week by market forecaster Juniper Research, 57 percent of large companies it polled said they are deploying or "actively considering" blockchain technology. Of those in the prototype phase, two-thirds said they expect the payment technology to be integrated into their operations by the end of 2018.

Those responses indicate that enterprise awareness of blockchain technology has increased rapidly over the last 12 to 18 months as early adopters look to replace legacy—often paper-based—storage systems. Among the other attractions is greater visibility into transactions and encryption-based security.

Without a central authority such as a bank responsible for managing and authorizing these transactions, the accuracy of records is essentially "crowd-verified" by all users on the chain. That capability promises to provide "frictionless transactions based on that distributed trust," according to one proponent of the technology, Henner Schliebs, a global vice president with SAP (NYSE: SAP).

Others also are bullish on the market for blockchain technology. For instance, the World Economic Forum predicts blockchain will store 10 percent of the world’s GDP within the next decade.

Nevertheless, the Jupiter survey warns that early adopters may underestimate the scale of their blockchain deployments and the potential for disrupting internal operations. "In many cases, systemic change, rather than technological, might be a better and cheaper solution than blockchain, which could potentially cause significant internal and external disruption," noted Juniper researcher Windsor Holden.

The survey found the interoperability issues became more urgent as companies move closer to deployment. Another worry was client resistance to the technology.

Among the business applications best suited to blockchain is wider use of digital fiat currency, a payment instrument issued by central banks with the same legal status as banknotes. Other emerging applications include settlements and land registry, the survey found.

Juniper said it polled nearly 400 executives of companies with more than 20,000 employees.

As teething problems emerge during deployment, efforts are underway to establish standard frameworks to ease the transition. Most notable among them is the Hyperledger Project launched by the Linux Foundation at the end of 2015. Among the early releases from the open-source effort is a Hyperledger Fabric being deployed by early promoters of the technology such as IBM (NYSE: IBM) along with Tokyo-based partner SBI Securities.

George Leopold has written about science and technology for more than 30 years, focusing on electronics and aerospace technology. He previously served as executive editor of Electronic Engineering Times. Leopold is the author of "Calculated Risk: The Supersonic Life and Times of Gus Grissom" (Purdue University Press, 2016).